A Pair Of Aerospace ETFs Could Like Warren Buffett's Precision Castparts Buy
Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) may have finally found a whale.
According to an array of media reports, Berkshire Hathaway is eyeing an acquisition of Precision Castparts Corp. (NYSE: PCP), which could be valued north of $30 billion, making it the biggest purchase in Buffett's storied tenure at the helm of Nebraska-based Berkshire.
Editor's note: On Monday around 7 a.m. ET, Buffett confirmed Berkshire's $37 billion deal.
Oregon-based Precision Castparts closed last Friday with a market value of $26.7 billion. Like other industrial stocks, the maker of components and products to the aerospace, power and general industrial markets has struggled this year as its shares have fallen 19.5 percent. That loss is nearly quadruple the 5.1 percent shed by the Industrial Select Sector SPDR (NYSE: XLI).
Still, a Berkshire acquisition of Precision Castparts could provide some much needed upside for exchange traded funds with decent exposure to the company being targeted. While there are nearly 40 ETFs that hold shares of Precision Castparts, the number of funds with somewhat notable exposure to the stock is small.
Aerospace ETFs To Watch
A good place to start is with the $530.6 million iShares U.S. Aerospace & Defense ETF (NYSE: ITA). The iShares U.S. Aerospace & Defense ETF, which debuted in May 2006, has a weight of almost 4.8 percent to Precision Castparts. That makes the stock the ETF's eighth-largest holding.
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Other ITA holdings include Dow component Boeing Co (NYSE: BA), a Precision Castparts customer, United Technologies Corporation (NYSE: UTX), also a Dow component; Lockheed Martin Corporation (NYSE: LMT) and General Dynamics Corporation (NYSE: GD). Indicating that aerospace and defense has been one of the stronger corners of the industrial sector this year, ITA is up 3.4 percent year-to-date.
An alternative to ITA is the PowerShares Aerospace & Defense Portfolio (NYSE: PPA). The $257. million PowerShares Aerospace & Defense Portfolio tracks the SPADE Defense Index, which “is designed to identify a group of companies involved in the development, manufacturing, operations and support of US defense, homeland security and aerospace operations,” according to PowerShares.
PPA has a 4.3 percent weight to Precision Castparts, also making the stock that ETF's eighth-largest holding. As is the case with ITA, PPA has outperformed broader industrial ETFs this year on its way to gain of about 2.4 percent.
Other top 10 holdings in PPA include Lockheed Martin, Boeing, United Technologies and General Dynamics. ITA and PPA charge 0.44 percent and 0.66 percent, respectively, per year. The ETF with the next largest weight to Precision Castparts is the SPDR S&P Aerospace & Defense ETF (NYSE: XAR), an equal-weight fund with a 3.5 percent weight to the stock.
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